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Dynamist Blog

Under prodding, Instapundit takes a non-horserace stand on outsourcing. He agrees with Dan Pink.

There's nothing wrong with predicting that something will be a political issue. But if you aren't just a horserace reporter, it's customary to say what you think the right stand is. Nobody says "gay marriage will be a political issue" and simply lets the reader guess their own views.

On reflection, I think I'm reacting to the economics (or lack of same), not the politics, of Glenn's posts on the subject. Often, his views on the international division of labor, a.k.a. outsourcing, sound a lot like some libertarians' views of drug use: "I'm against it as a practice, but I don't think the government should try to stop it." Can I prove that's what he thinks? Not at all. In fact, he may not even think that at all. But he leaves it for the reader to fill in the blanks. He's coy.

Open markets and open societies go together. Both depend on finding ways to trust and interact with strangers in mutually beneficial ways. That exchange disrupts not just settled economic relationships but settled social and ethnic definitions as well. I'm all in favor of low taxes, but they do not, by themselves, a free economy make--no matter what an erstwhile supply sider may think.

My thanks to Eugene Volokh for doing the research I should have done when Craig Roberts and Charles Schumer's piece first ran. (My one quibble: I don't think even an unreconstructed southerner would include American blacks among "international looking" people. But he might include most of the Volokh Conspiracy, including those born in the USA.) Anyone who has spent 15 minutes talking with Roberts, or who saw him on C-Span sitting with Schumer and declaring that "the United States will be a Third World country in 20 years," can tell he thinks society has gone to hell and dark-hued people have a lot to do with that decline. (Women, too. Or at least I always got that feeling when I talked to him.) He is not a man who hides his views. And unlike Pat Buchanan, he doesn't even have a sunny persona.

The interesting questions: What does Senator Schumer think? And why isn't he paying a political price for this alliance?

As a faithful reader of Dan Drezner's blog, I knew about Catherine Mann's important policy paper on the future of info-tech outsourcing (.pdf download here) almost as soon as it came out. I somehow assumed everyone else did too, equating blog awareness with widespread media coverage. Then I met Mann at the MIT alumni party at the American Economic Association meetings early this month. We had an interesting conversation about the trend, its positive long-term implications, and its immediate challenges, and I also learned that Dan's blog and the New York Sun pretty much accounted for all the press attention the paper had gotten.

So I devoted my latest NYT column to Mann's work. Her argument is particularly interesting to me because I'm old enough to remember--and cite quotations from--the last time we had this kind of hysteria about tech jobs going abroad. Hardware went offshore in the late 1980s, and the result was a huge boom in computer use, business productivity, and overall employment in the United States.

As a side note, I look forward to the day when my pal Glenn Reynolds stops coyly feeding the anti-outsourcing frenzy by egging on demagogic politicians and actually defends the international division of labor. Sure, outsourcing is a political issue. So was Japanese auto competition. So are steel imports. But the fact that unemployed workers are understandably upset doesn't mean the policies they want--or the general anti-competitive attitudes they express--are in the public interest.

If you haven't read it yet, Dan Pink's cover story in Wired is not just a must read but a good read as well.

Back in the 1980s, I heard it said that the difference between Republicans and Democrats was that Republicans staffed federal regulatory agencies with economists and Democrats staffed them with lawyers. The Bush administration has followed that pattern at the FDA, where Mark McClellan, an M.D./econ Ph.D., is the agency head. Dueling evaluations of his tenure in the Boston Globe and NYT shed light not only on McClellan's own policies but on the environment in which the FDA functions: one in which success is often measured less in public health than in anti-business activism. My favorite quote is this extreme statement, treated seriously in the Globe:

"He's really been a disaster, possibly the worst commissioner I've seen," said Dr. Sydney Wolfe, director of health research at consumer group Public Citizen in Washington. "He is more well-liked by the pharmaceutical industry than any other commissioner I can remember."

Note that Wolfe doesn't point to any bad policy outcomes. But McClellan doesn't share his reflexive hatred of the pharmaceutical industry, so he must be bad. The NYT account, which is far more positive than the Globe's assessment, likes McClellan because he's banned ephedra and hasn't made policy according to right-wing religious doctrine.

Both pieces are worth reading, especially during a political season where nobody is paying much attention to the vast power of the regulatory state. Unlike tax and spending policies, most regulations receive little public debate--and much of what does occur is on symbolism, not substance--and they tend to be permanent. The potential for damage and distortion is enormous. (For my general views on the problems of regulation, see The Future and Its Enemies.)

As a side note, stories about Mark McClellan or his brother Scott, the White House press secretary, often mention that their mother, Carole Keeton Strayhorn, is a Republican elected official, the comptroller of Texas. What they don't say is that she's not a go-along-to-get-along Republican, having seriously ticked off the establishment last summer by sending the budget back to the legislature for revision on the grounds that it wasn't really balanced. As best I can tell, on casual readings, she mostly lost her battles with the legislature, which took out its wrath on her agency.

Last week, I attended the board of trustees meeting of the Foundation for Individual Rights in Education (FIRE), which is doing great work upholding academic freedom, due process, and freedom of conscience on campuses. One of its new initiatives is a comprehensive website, Speechcodes.org, which tracks the status of speech restrictions on campuses. Along with a wealth of background information on the issues involved, the site rates how well 300 colleges and universities adhere to constitutional protections (for public universities) and their own promises (for private schools). Schools with clearly problematic rules get a red light, those who clearly protect free speech get a green, and those who fall in the middle get a yellow.

The old fallacy post hoc ergo propter hoc--e.g., I got breast implants and then I got autoimmune disease; therefore the implants caused the diseas--leads to a lot of bad public policy. But at least it appeals to the human desire to find patterns. When it comes to the latest serious health problem--big fat Americans with all sorts of obsesity-related diseases--people make connections that don't even require post hoc logic. Take report from a LAT account on the tax costs of obesity:

Susan Foerster, chief of cancer prevention and nutrition for the state health department, said her staff is analyzing a variety of factors--such as car-dominated or unsafe neighborhoods and limited access to fresh fruits and vegetables--that could cause millions of people to gain weight in a relatively short time. Obesity "is way up over where it was even 15 years ago," Foerster said. "It's not a matter of simply pushing away from the table or getting up off the couch ï¿ the increase in rates over time has been a function of changed lifestyles and changed environment."

Ms. Foerster herself says people weren't this fat a mere 15 years ago. That would be the mid-1980s. I was alive in the mid-1980s; I even lived in California. Americans drove cars and lived in the suburbs. They didn't walk a lot. There was less access to fresh fruits and vegetables than there is today. Ms. Foerster, who was apparently born around 1990, seems to think the 1960s, 1970s, and 1980s resembled the 1920s (or even earlier). Why did people gain so much weight over such a short time? It's a mystery that requires a lot more intelligent analysis than the California health department is offering. A 15-year-old trend won't have a 50-year-old cause.

A leading candidate is the changing nature of work, with more people sitting in chairs all day. When my father started work as an industrial engineer in the late 1950s, he was told that the typical factory worker walked six miles in the course of a day's work; walk that much and you're unlikely to get fat. Work today is more pleasant, and less taxing, but instead of getting paid to exercise, you have to use leisure time to burn calories.

Take health care, a fast-growing industry. While the doctors may be slim, in my admittedly unscientific experience, the typical support person--whether a nurse, a technician, or a paper processor--is seriously overweight. And it's not as though people who work in hospitals and doctor's offices don't know being obese is dangerous.

Because California's skewed income distribution, combined with progressive tax rates, means that the people at the very top of the income heap pay a very high percentage of the personal income tax collected in this state.

Their extraordinary, onetime income surge at the end of the last century provided most of the new tax revenue that legislators and former Gov. Gray Davis used to raise teacher salaries, increase welfare benefits and expand eligibility to state-provided health care. But the decline that followed also accounted for most of the revenue drop that contributed to the state's fiscal crisis. And as of the most recent tax year, they hadn't hit bottom yet.

The million-dollar earners peaked in 2000, when 44,000 of them -- about enough to fill your average baseball stadium -- reported incomes totaling $172 billion and paid more than $15 billion in taxes. The tax take from that relative handful of returns accounted for more than one-third of all income tax paid in the state.

The next year, the number of returns reporting incomes that high slumped to 29,000. Their combined income also declined, by nearly half, to $95 billion. And here was the killer: Their tax liability dropped from $15 billion to just under $8 billion....

The remaining 25,000 million-dollar earners took in a combined $75 billion, down from $95 billion the year before. And the tax take from that crowd declined again, to just over $6 billion. The super-rich, and the state's treasury, are basically back to where they were in 1998....

Since 2000, when the high-tech bubble was concentrating income at the higher end of the scale, the share of California income reported by those highest fliers -- the million-dollar earners -- has been cut in half, from 20 percent to just 10 percent. More broadly, all of those earning more than $100,000 in California saw their combined income drop from 54 percent of all the money earned in the state to 46 percent.

The middle-class, meanwhile, saw its share of the income expand. Those earning between $50,000 and $100,000 increased their share of the income from 23 percent to 27 percent. But people in that income category pay relatively little income tax in California. Combined, they pay a bit less today than they did in 2000.

In fact, those earning between $50,000 and $100,000, while they took in 27 percent of the income in 2002, paid 19 percent of the income tax. People earning more than $100,000, while earning 46 percent of the money in the state, paid 73 percent of the income tax.

The tax-collection data should provide an important reality check on Democrats who've been responding to Arnold's budget cuts with calls for higher taxes on the richest Californians. Soaking the rich is already the state's approach to taxation, and it's one reason the budget is such a mess.

Concludes Weintraub: "Raising tax rates on this small group of highly successful Californians will undoubtedly be part of the mix of deficit-closing policy proposals debated in the Capitol this year. But the tax return data suggest that a more fruitful and more stable approach to balancing the budget over the long term would be to somehow figure out how to make more Californians wealthy, and keep them that way.